Natural Gas -- the real obstacles to its adoption as a vehicle fuel

I wrote this article in September of 2009. It is as appropriate today as it was then and to date there has been very little progress and no reduction in the onerous and unnecessary regulations.

In the very early years of the 20^th century the “Horseless Carriage” came into being. As this new technology evolved everything from steam to electricity was used to power these vehicles. As the demand for convenient, fast long range transportation developed, gasoline became the fuel of choice for the following two reasons -- the power coefficient and the availability. Gasoline is a very powerful explosive when ignited in a confined space and is also easy to transport in a container. This makes it very suitable for use as a transportation fuel. As a result, the entire transportation industry, from trains to planes to automobiles adopted oil derivatives as their preferred fuel.

During the period from the early 20^th century through the beginning of the 1970’s, automobile use in the US increased from Henry Ford creating the Model T through Herbert Hoovers campaign promise of “A car in every garage and a Chicken in every pot” to the late sixties hot rods and drag races. The automobile became an iconic expression of American Freedom. Supplies of gasoline were abundant and cheap. There was little incentive for technological improvement except to make the car go faster or look better.

As the seventies unfolded, we experienced the first signs that the golden days of readily available oil had reached their zenith. Coming of age at the end of this era, I too was a fan of the hotrod, but remember well the day during my senior year in High School when I had to pay the exorbitant sum of $7.00 to fill the tank in my 1969 American Motors AMX.

Around the same time, we experienced our first gas shortages and lines at gas stations. Our President, Richard Nixon, rather than push a national referendum to seek alternative fuels, decided to place wage and price controls on the purchase of gasoline products. As any economics student knew, and as history has shown, this had an opposite effect than the one desired. Gasoline became scarce and industry was negatively impacted to the point that a recession was felt across the entire country.

People were also becoming concerned about the harmful pollutants being emitted from the tailpipes of our cars. Government stepped in and legislated emissions requirements on the auto manufacturers. Gas efficiency, never really great, plummeted and emissions testing became a requirement in order to license your automobile.

When Jimmy Carter became our president, his administration reviewed the situation with the oil supply, determined that America was using more oil than domestic production could supply and that America was importing an incredible 20% of our domestic demand. His response -- create a bureaucracy -- The Department of Energy, to develop ways to decrease our dependence on the importation of foreign oil. The result of this was more shortages, rapidly increasing prices and a bureaucracy which today has a budget of 16.5 BILLION DOLLARS per year while we as a nation have increased our imports of foreign oil to approximately 50% of demand.

During this period of turmoil in the marketplace, the government has responded with additional legislation on fuel efficiency and emissions standards. Regulations have been layered one on top of the other until the goal of lower emissions and fuel efficiency have become contravening interests.

Advance to the spring of 2008, oil traded at the stratospheric price of $55.00 per barrel on the world market. By June, it had jumped to $86.00 per barrel, yet demand continued to rise while supplies coming out of the Oil Producing and Exporting Countries (OPEC) declined due to the war in Iraq. World demand exceeded supply by approximately 2 million barrels per day. Prices on the open market continued to rise until they reached their peak at $147.00 per barrel. OPEC increased supply by about a million barrels a day at the urging of then candidate Obama, American consumers cut back on our use of gasoline by a few million barrels per day and the price of a barrel of oil dropped to a low of $36.00 as supply began to exceed demand. Yet we as a country were still importing more than 65% of our domestic demand. As OPEC members cut supply to equalize the supply/demand curve, oil increased in price to its current price of approximately $70.00 per barrel. As time passes, demand will increase and supply channels in America will remain constricted so prices will continue to trend upward.

There are numerous alternatives on the horizon, electric cars will continue to become more popular, but will not become viable until significant advances in battery technology are achieved. Diesel is growing in favor, but doesn’t come close to reducing our dependence on foreign oil. Hydrogen fuel cells remain quite a few years from perfection and distribution poses a major problem. The most reasonable alternative in the world today is Compressed Natural Gas (CNG). Natural gas is often described as the cleanest fossil fuel, producing less carbon dioxide per BTU delivered than either coal or oil, and far fewer pollutants than other fossil fuels.

Currently, Natural Gas is selling for less than $2.60 per thousand cubic feet. For comparisons purposes, a gallon of gasoline produces 124,000 British Thermal Units of energy, while 1000 Cubic feet of Natural Gas produces 1,028,000 British thermal units of energy. Both cost approximately $2.60 at today’s prices. Yet, cleaner burning Natural Gas does not compete with gasoline as a transportation fuel because it has been much harder to package and meter in the automobile. The major difficulty in the use of natural gas is transportation and storage because of its low density. The easiest form of delivery is via pipeline and pipelines now cover more than 70% of America. Natural gas pipelines are economical, but many existing pipelines in North America are close to reaching their capacity. Natural Gas supplies are at their highest levels since the beginning of President Reagans second term. There is so much natural gas available in storage that producers are having a hard time finding places to store their supplies.

Contained within the borders of the United States are enough recoverable reserves of Natural Gas to supply all the energy needs of the US for hundreds of years to come. The conversion to CNG as a transportation fuel has the potential to reduce our dependence on foreign oil imports to virtually zero within the next ten years. CNG is the perfect fuel to bridge the paradigm shift from gasoline to the future renewable fuels.

In countries around the globe, primarily the developing countries of Pakistan, Argentina, Brazil, Iran and India use of CNG as a transportation fuel is becoming commonplace. CNG use as a transportation fuel in America is primarily limited to fleet vehicles.

Why has America been slow to convert to the use of CNG? Easy availability of gasoline is one answer. On many street corners, in every community, there is a filling station which open 24 hours per day seven days a week. Another reason is a lack of desire. As long as gasoline is cheap and readily accesible there has not been a desire to seek out alternatives.

As the cost of gasoline increases, why isn’t America rushing to convert their cars to run on Natural Gas? The answer is our government. Natural Gas as a transportation fuel is regulated by our government to the point that producing CNG vehicles is much too costly. Conversion of gasoline or diesel powered engines requires a Certificate of Conformity from EPA or an Executive Order from the California Air Resources Board (CARB). This requirement applies to each specific engine family. This means that each type of engine produced must undergo certification. To obtain a Certificate or EO, the manufacturer must submit substantial emissions performance data and related documentation to EPA and/or CARB for review. Additionally, manufacturers may be asked to submit a converted vehicle for rigorous testing to verify this data. The process of engineering, manufacturing, installing, pre-testing and then submitting a proposed retrofit system to an EPA- or CARB-approved laboratory for certification is a time-consuming and expensive process that costs $200,000 or more per engine model. It is economically unrealistic to expect the major automobile manufacturers to undergo this expense for every engine model they build and offer when the demand is so narrow currently.

Most vehicles driven in the United States today are within their useful life as defined by the EPA as roughly 10 years or 120,000 miles. EPA guidelines indicate that certification of the retrofit system IS required for these vehicles which makes the conversion option economically unfeasible. Converting privately owned vehicles does not meet this important criterion and will fail state or local emissions tests.

Vehicles which fall outside the EPA guideline, those older than 10 years or with more than 120,000 miles, encounter another obstacle. They are still required to pass emissions tests. When converted to CNG, emissions levels are so low that an error is indicated on the testing equipment resulting in a fail situation. Without passing the test, State motor vehicle department authorities will not allow the automobile to be licensed.

On July 21, 2009 the House passed HB 1622, with appropriations of 30 million per year for 5 years and sent it over to the Senate where it became the companion W.1350.IS. These actions are redundant, unnecessary, and more examples of the United States legislative bodies intruding into the private sector in ways that are not necessary.

There is no question that CNG produces fewer emissions than burning oil based fuel. This is undisputed fact. There is no argument that Natural Gas supplies come from within our country. The supply of Natural Gas is sufficient to power every vehicle in America without noticeably depleting reserves. There is no argument that increasing the use of Natural Gas will increase domestic jobs. The conversion technology exists, is easy to install and inexpensive enough to make the conversion cost effective. There is no argument that adding CNG pumping capacity to local filling stations is no harder than converting to ethanol (E85) metering pumps.

We don’t need to spend another 150 Million Dollars and 5 years to tell us something we already know. We need to use common sense and eliminate all restrictions and laws on the conversion of vehicles. We do not need protection us from ourselves. Get the government out of the way and let the private sector and market conditions determine what will work most effectively. If we do, within 10 years, we will virtually eliminate the import of foreign oil, all the while, cleaning our air.

THE PRESIDENTS “LONG VIEW” OF GAS PRICING

On Thursday the President flew down to deliver a speech on why gas prices have been rising so much. The jist of his comments can be boiled down to two words spoken by the President -- “it’s complicated”. Well, yes Mr. President it actually is complicated. It is complicated by this administration and the Federal Government in general. Mr. President, the economics of oil and gas are not a relationship status on the Facebook, they are a real life issue which is having a truly negative affect on the pocketbooks of every American citizen.

The President then made the statement that the price of gas and oil was not controlled by the United States, but by the world market. Well hell yes, sure took long enough to figure this out. Seems funny that the President is finally getting around to recognizing and speaking out about this when for the past three SOTU speeches, as oil prices rose, he claimed it was the fault of others such as the big oil companies and anyone else he could vilify.

The President made an effort to blunt his failings in this area by making the statement that we should all be prepared for the Republicans coming comments that they have the solution and it is based on three words - Drill, Drill and Drill. He said anyone saying that we can see “immediate lower gas prices are either uninformed or dishonest”. Yes he actually said those who say that we have to drill more are being dishonest. Of course in the next sentence he stated that we were in fact drilling more today than we were before the Gulf Oil disaster in April of 2010 because of the policies of his administration. I’ll leave it to the readers to decide who is being dishonest.

Here’s what he didn’t say, the increased drilling and production is not coming from public lands, but from private lands where the Federal government cannot stop the recovery process. What he did not say is that the EPA in conjunction with the Department of Energy and the Executive branch are not issuing permits for the recovery of oil and Natural Gas on public lands. So the increased production the President takes credit for and that he claims isn’t really solving the problem is actually occurring in spite of, not because of the Federal Government.

The President barely mentioned the fact that he turned down the Keystone XL pipeline, but in the few statements made, he defended his position. The President knows as well as anyone who studies the situation, or at least he should, that with increased oil production coming from the Bakken fields of N. Dakota and Montana, the Keystone XL is a necessary step to get the oil to the refineries expeditiously and at the most reasonable cost. He knows that the Keystone XL has been approved by ALL the states over which it will cross. He knows that there are literally hundreds of pipelines already crossing the “environmentally sensitive” Nebraska aquifers and that the Keystone XL will be the best designed and built pipeline in the history of the world. Further, he knows that turning down the construction of the pipeline is one of the causes of gas price increases. Yet he still feels the need, even in spite of the rising gas prices, to defend this failing on his part.

The President, didn’t mention Natural Gas in his speech yesterday in spite of how he made it a major part of his SOTU address in January. I assume the reason he didn’t mention it on Thursday is because the EPA hasn’t actually lessened the regulatory restrictions on its development and use that the President promised. Let me make a point here, there has been growing criticism about the use of the drilling technique called “fracking” in the recovery of Natural Gas. This may be the reason the EPA isn’t moving very fast, but the fact is, the fracking process has been used for more than 40 years in more than 1 MILLION, yes over a MILLION wells without one incident of underground water contamination due to the fracking process. Above ground disposal problems have occurred on rare occasions, but they can be eliminated with enhanced monitoring.

As he began to speak about his “Long View” of the President claimed that energy is “one of the major challenges of your generation” and that "anyone who tells you we can drill our way out of this problem doesn't know what they're talking about -- or just isn't telling you the truth." I will tell you the truth, we do need to drill, the economic life of our nation depends on it and we can drill our way out of it. I agree with the President that we can’t drill our way out of the looming crisis with oil, but we can drill our way out with Natural Gas. Natural Gas is the bridge to our future. Our immediately recoverable Natural Gas resources exceed the needs of our country for the next 10 generations. Far longer than it will take to commercially develop alternative sources of energy. Natural Gas can be used as it comes out of the ground. There are no requirements to refine it so the gas is more economical to use. There are currently existent, natural gas pipelines under more than 50% of all the roads in America so accessibility is not an issue. Personal use vehicles (cars and trucks) are very easily and cost effectively convertible to the use of Natural Gas and it burns much cleaner than gasoline or diesel fuel. Converting 35% of the personal transportation vehicles to the use of Natural Gas over the next 5 years will eliminate our need to import any oil or gasoline from sources outside the North America and at the same time cut the demand for oil so dramatically that gasoline prices will drop substantially. The President knows this, yet he chose not to make mention of it because it will shed light on the failings of the EPPA and this administration. So I have to ask, who is being dishonest when they say we can’t drill our way out of the rising gas price crisis?

The President then went on to make comments about his holistic approach to energy development and barely mentioned the solar alternative or the Solyndra and Fiskars fiascos except to say "Some technologies don't pan out, and some companies will fail," Obama said. "But as long as I'm president, I will not walk away from the promise of clean energy”. It is very wise to promote the development of all forms of alternative energy, I have been doing so for many years, but the development of such technology should not be at a cost to the American taxpayer, especially when the companies receiving the funds are “friends of the administration”. The Federal government SHOULD NOT pick and choose which companies should be promoted. This is not the responsibility of the Federal Government.

President Obama went on to promote the development of Algae as a fuel source. This is a very responsible suggestion and one which I have been actively involved for the past 5 years. I wonder if the President and his advisors are aware that algae has more than 5000 distinctly different and identifiable strains and that more than 70% of these strains produce very little oil. I wonder as well if the President and Department of Energy Secretary Lu know that the microscopic spore of these algae strains fly throught eh air and easily invade the strains being used to produce oil rendering them unproductive. Many studies have been undertaken to determine the viability of the use of Algae as a feed stock for use as a biofuel. Almost all the studies have concluded that capital cost, labor cost and operational costs make the use of algae too expensive to be competitive with conventional fuels. Unless new, more efficient methods of growing and refining algae into biofuel are developed, their use may never be realized. This is not an area which the Federal Government should be investing money. I have been asking myself if the President and Secretary Lu have another crony company they either have or are preparing to provide development funding for.

He stated that "It's the easiest thing in the world to make phony election-year promises about lower gas prices". "What's harder is to make a serious, sustained commitment to tackle a problem. And it won't be solved in one year, it won't be solved in one term, it may not be solved in one decade. But that's the kind of commitment we need right now." I fully agree with the President on this and applaud him for making the statement so I am going to offer a solution which will solve the problem of rising gasoline prices in the near as well as the long term.

First, approve the Keystone XL pipeline. There is no environmental or economic reason for the delay. Denying approval is absolutely nothing more than a political move which is 180 degrees opposite his statement Thursday that "It's the easiest thing in the world to make phony election-year promises about lower gas prices,"

Second, issue permits for the recovery of oil from public land. ANWR should be the first place permits are issued, Off shore permits immediately following and the Barnett and Williston fields to come at the same time or shortly thereafter. The EPA should allow the permits on a bid basis with the only restriction being that 80% of the recovered oil must be refined and sold in the American marketplace.

Third, reduce the regulatory burden on the construction of new oil refineries. The regulatory hurdles are so enormous that the development and construction of refineries is almost impossible forcing the refining US recovered oil to off shore locations and driving up the cost of the finished product.

Fourth, eliminate all EPA restrictions on the use of Natural Gas as a fuel in personal use vehicles except one, that the exhaust emissions meet the same standards as gasoline and diesel fueled vehicles of the same class. If this is approved, the market will take over and you will see Nat Gas fueled vehicles invade the market immediately and as a result, the price of oil decrease in short order.

Finally, stay out of the energy business. It is fine to support and promote innovation, but it is not good to offer enhancements to preferred companies. Let the market develop paradigm shifting innovations at their own pace without governmental assistance or interference. The innovators will do a much better job this way. If this is not possible by the administration, it should at the very least, make the financial assistance be in the form of a post development success fee which is earned on a competitive basis rather than a handout to politically connected companies.

If the President is going to be honest during this election cycle, and really interested in long term solutions, he will follow this advice.